Subprime fallout continues

Lengthen liability maturities!

As credit problems continue, and as inflationary pressures build, it's only a matter of time before the Fed's actions fail to hold government rates from rising.

When they do, long rates will increase 200 basis point and asset prices will fall again.

Prudent managers will lengthen liability maturities past the 5 year mark if they want to have the ability to make loans and take on assets.

Municipalities are suffering as their auction rate securities lose favor with investors. They will return to the fixed rate market to solve this problem.

FED'S BLUNDERING
There is always a shake out after a 25 year bull market as we've had in interest rates, but it's been exagerated by the Fed's insistence on managing the Fed Funds rate.

Recent actions to auction off $100 billion in short term credit move the Fed closer to a market based solution to short rates. Let's hope they finally stop meddling in the short end of the curve and leave those decisions to the market.

Except for crises like this, the Fed would be reduced to adding high-powered money on a regular basis and leaving the markets alone.